Heating and plumbing supplies firm Ferguson (FERG) was the top performer in the FTSE, up 3.9% to £61.99 despite posting a downbeat trading update for the third quarter to the end of April.
While trading was in line with expectations to the middle of March, the ‘unprecedented action taken by governments to contain the COVID-19 virus’ caused ‘adverse trading conditions within the group's end markets.’
As a result of the rapid drop in sales the firm has withdrawn its financial guidance for the year. In order to save cash it has already suspended its $500m share buyback, cut capital spending and withdrawn the interim dividend.
RELIANCE ON US CUSTOMERS
For the three months to 30 April group sales were down 2.2%, but April alone saw a fall of 15.3% due to sharp falls in Canada (down 33.6% for the month) and the already-struggling UK market (down 60%).
US sales, which make up the majority of the group total, were up 1.9% in the quarter although they weren’t immune to the sudden drop in economic activity, falling 9.3% in April.
‘Our strong revenue momentum in February and March was adversely impacted in April as federal, state and local COVID-19 restrictions and safety measures brought about a reduction in demand’, said chief executive Kevin Murphy.
The impact on US sales is linked to the degree of disruption locally, which has been variable across US states and cities. In major hot spots such as New England, New York, Michigan, the Pacific North West and Northern California, where infection rates have been highest, revenues were down significantly.
However, countering this slightly, Waterworks grew revenue by 8.5% in April as it suffered from fewer restrictions and the standalone online business grew revenue by 14.6% in the month thanks to strong consumer demand for home improvement products.
UK DEMERGER DELAYED
The UK business, which operates under the old Wolseley name, makes up less than 10% of group revenues and is being treated as a non-ongoing operation due to the demerger.
Revenues for the quarter were down 26.5% as the lockdown ‘severely impacted demand’, and the business recorded a trading loss of £12m as a result, compared with a profit of £20m in the same period last year.
The firm says its intention to demerge the UK business is unchanged, ‘and we continue to progress the demerger process, although timing will depend upon the stabilization of market conditions.’
Delaying the demerger process also delays the board’s plan to apply for a secondary listing in the US, where there is a comparable set of peer companies which tend to trade on higher multiples, which could lead to a hoped-for re-rating of the stock.
